Financial Accounting
Exam Materials
Course Introduction
Financial Accounting is an introductory course that explores the fundamental concepts and principles underlying the preparation and interpretation of financial statements. The course covers the accounting cycle, including the recording, classification, and summarization of business transactions, as well as the preparation of key financial reports such as the balance sheet, income statement, and cash flow statement. Emphasis is placed on understanding how financial information is used by various stakeholders such as investors, creditors, and management to make informed economic decisions. Students will also examine the ethical and regulatory environment of financial reporting, develop skills in analyzing financial data, and gain a foundational understanding necessary for more advanced accounting and business courses.
Recommended Textbook
Horngrens Accounting The Financial Chapters 12th Edition by Tracie L. Miller-Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Which of the following events is NOT recorded by accountants?
A)purchase of a building for $200,000 cash
B)effects of an economic boom
C)sale of merchandise on account
D)signing a $400,000 note to purchase land
Answer: B
Q2) Equity decreases with expenses and revenues.
A)True
B)False
Answer: False
Q3) Nick's Landscaping Services incurred $500 as a repair expense and promised to pay the repair company within 30 days.Which of the following accounts will increase as a result of this transaction?
A)Accounts Receivable
B)Cash
C)Accounts Payable
D)Nick,Capital
Answer: C
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A business borrows cash by signing a note payable.Which of the following accounts is credited?
A)Notes Payable
B)Accounts Payable
C)Notes Receivable
D)Cash
Answer: A
Q2) The accounting equation is made up of four parts or categories.
A)True
B)False
Answer: False
Q3) Which of the following accounts decreases with a credit?
A)Cash
B)Owner,Capital
C)Accounts Payable
D)Unearned Revenue
Answer: A
Q4) A business performs services for its customer for $50,000 on account.Record the transaction in the journal.
Answer: 11ea8a75_426f_a17a_a2a1_f9b6bf46a19f_TB6701_00
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) The sum of all the depreciation expense recorded to date for a depreciable asset is called ________.
A)book value
B)residual value
C)depreciation expense
D)accumulated depreciation
Answer: D
Q2) On April 1,Beta Company purchased office supplies for $1,500.At the end of April,Beta's employees took a count of the remaining supplies and found that there was $500 of supplies left.Provide the adjusting entry needed at the end of April.(Ignore explanation).Assume the office supplies were initially recorded as an asset.Assume there were no office supplies on hand prior to the purchase on April 1.
Answer: 11ea8a75_4259_32e1_a2a1_c31138490422_TB6701_00
Ratinal:
Supplies Expense = Beginning balance in Office Supplies - Ending balance in Office Supplies
Supplies Expense = $1,500 - $500 = $1,000
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) List the steps of the accounting cycle that take place during the period.
Q2) Under which of the following categories would Accounts Payable appear?
A)Long-term assets
B)Current assets
C)Long-term liabilities
D)Current liabilities
Q3) The Service Revenue account is a permanent account.
A)True
B)False
Q4) The Office Supplies account is a temporary account.
A)True
B)False
Q5) The Interest Expense in the worksheet's unadjusted trial balance column is $1,000.Interest Expense in the income statement column is $12,000.Which of the following entries would have caused this difference?
A)a $12,000 credit to Interest Expense in the worksheet's adjustments column
B)a $12,000 credit to Interest Payable in the worksheet's adjustments column
C)a $11,000 debit to Interest Expense in the worksheet's adjustments column
D)a $11,000 credit to Interest Expense in the worksheet's adjustments column
Q6) Why are temporary accounts not included in the post-closing trial balance?
Page 6
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) The financial statements under the periodic inventory system and the perpetual inventory system are the same.
A)True
B)False
Q2) Expenses that fall outside the regular operations of a business are ________.
A)generally a substantial part of net income
B)recorded in the Retained Earnings account
C)included under the other income and expenses section of the income statement
D)not considered for the calculation of net income
Q3) Delivery expense is a(n)________.
A)administrative expense
B)part of Cost of Goods Sold
C)operating expense
D)overhead expense
Q4) A wholesaler is a merchandiser who buys goods from a manufacturer and then sells the goods to retailers.
A)True
B)False
Q5) Prepare the journal entry to close the expense accounts.Omit explanation.
Q6) What does the gross profit percentage measure? How is it computed?
Page 7
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Assuming that costs are changing during the accounting period,under the last-in,first-out inventory costing method,the amount of cost of goods sold calculated using the perpetual inventory system will usually differ from the amount calculated using the periodic inventory system.
A)True
B)False
Q2) Given the same purchase and sales data,and assuming the cost of inventory is rising,the costing methods for inventory will result in different amounts for net income.
A)True
B)False
Q3) Which of the following values is considered the market value when valuing inventory at lower-of-cost-or-market under U.S.GAAP?
A)sales price less the company's normal mark-up percentage
B)current replacement cost
C)cost plus the company's normal mark-up percentage
D)historic cost
Q4) What does inventory turnover measure? What does a high rate of inventory turnover indicate?
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Depreciation expense is recorded in a ________.
A)cash payments journal
B)sales journal
C)cash receipts journal
D)general journal
Q2) Northern Company sold goods to Eastern Enterprises for $1,000 on account.Cost of goods sold was $745.Northern uses a perpetual inventory system and special journals.The cost of goods sold is recorded in the ________ column of the sales journal.
A)Accounts Receivable DR,Sales Revenue CR
B)Cost of Goods Sold CR,Merchandise Inventory DR
C)Cost of Goods Sold DR,Merchandise Inventory CR
D)Sales Revenue DR,Accounts Receivable CR
Q3) A subsidiary ledger is a record of accounts that provides supporting details on individual balances,the total of which appears in a general ledger account.
A)True
B)False
Q4) Describe the transactions recorded in the purchases journal.
Q5) Describe the transactions recorded in the cash payments journal.
Q6) List and describe two features of an effective accounting information system.
Page 9
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) When a check is issued,the party who is paying the cash is referred to as the
A)payee
B)maker
C)bank signatory
D)depositor
Q2) On a bank reconciliation,deposits in transit are added on the bank side of the reconciliation.
A)True
B)False
Q3) Regarding controls over cash receipts by mail,the accounting department should prepare the deposit ticket from the remittance advices.
A)True
B)False
Q4) To be IFRS compliant,foreign companies are not required to have their internal controls audited by outside auditors.
A)True
B)False
Q5) Define internal control.
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Chapter 9: Receivables
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Sample Questions
Q1) Factoring occurs when a business sells its receivables to a finance company or bank.
A)True
B)False
Q2) The accounts receivable turnover ratio measures ________.
A)a company's ability to pay its current liabilities with its current assets
B)how many days it takes,on average,to collect receivables
C)how many days it takes,on average,to sell the inventory
D)the number of times a company collects the average accounts receivable balance in a year
Q3) Once an accounts receivable is written off ________.
A)the account must be turned over to a collection agency
B)the company continues to pursue the collection
C)the company still expects to be paid
D)the customer's accounts receivable is removed from the books
Q4) The acid-test ratio is also known as the quick ratio.
A)True
B)False
Q5) Prepare the journal entry to record an uncollectible account receivable of $10,000,using the direct write-off method.Omit explanation.
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) When a company makes an accounting change in estimate,Generally Accepted Accounting Principles require that the company make changes to financial statements of prior years.
A)True
B)False
Q2) Gain or loss is determined by comparing the cash received and the market value of any other asset received with the historical cost of the asset disposed of.
A)True
B)False
Q3) Under U.S.GAAP,plant assets are reported at book value on the balance sheet.
A)True
B)False
Q4) The cost of a building depends on whether the company is constructing the building or is acquiring an existing one.
A)True
B)False
Q5) Plant assets remain on the business's books until they are disposed of. A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) The employer is required to directly deposit the employee's take-home pay into the employee's bank account.
A)True B)False
Q2) The current portion of notes payable is the amount of the principal that is payable more than one year from the balance sheet date.
A)True B)False
Q3) A journal entry is prepared to reclassify the current portion of a note payable.
A)True B)False
Q4) The journal entry to record the employer's payroll tax expense will include a debit to Employee Income Taxes Payable.
A)True
B)False
Q5) A pension plan is a plan that provides benefits to retired employees.
A)True B)False
Q6) What is a contingent liability? Provide two examples of contingencies.
Page 13
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Chapter 12: Partnerships
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Sample Questions
Q1) When a new partner is admitted to a partnership by purchasing an existing partner's interest,the business's accounting records do not record the transfer of cash from the new partner to the existing partner.
A)True
B)False
Q2) Bill and Bob share profits of their partnership in the ratio of 6:1 respectively.If the net income of the firm is $29,000,calculate Bill's share of net income.(Do not round any intermediate calculations. )
A)$20,714
B)$4143
C)$29,000
D)$24,857
Q3) When a partner dies,the partnership ceases to exist,and the deceased partner's estate will have ownership of the partner's equity in the partnership.
A)True
B)False
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Page 14
Chapter 13: Corporations
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Sample Questions
Q1) A corporation has 14,000 shares of 13%,$104 par noncumulative preferred stock outstanding and 22,000 shares of no-par common stock outstanding.At the end of the current year,the corporation declares a dividend of $220,000.What is the dividend per share for preferred stock and for common stock? (Round your answer to the nearest cent. )
A)The dividend per share is $13.52 to preferred stock and $1.40 to common stock.
B)The dividend per share is $8.26 to preferred stock and $1.40 to common stock.
C)The dividend per share is $13.52 to preferred stock and $13.52 to common stock.
D)The dividend per share is $13.52 to preferred stock and $27.50 to common stock.
Q2) A corporation's income statement includes some unique items that do not often apply to smaller businesses.These items include gross profit and income from continuing operations.
A)True B)False
Q3) A corporation is a separate legal entity that is organized independently of its owners. A)True B)False
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Page 15
Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) The Technology Company issues $517,000 of 11%,10-year bonds at 104 on March 31,2018.The bonds pay interest on March 31 and September 30.Assume that the company uses the straight-line method for amortization.Calculate the net balance that will be reported for the bonds on the September 30,2018 balance sheet.(Round your intermediate answers to the nearest dollar. )
A)$517,000
B)$537,680
C)$536,646
D)$538,714
Q2) Great Lake Glassware Company issues $1,121,000 of its 12%,10-year bonds at 99 on February 28,2018.The bonds pay interest on February 28 and August 31.Assume that Great Lake uses the straight-line method for amortization.The journal entry to record the first interest payment on August 31,2018 includes a ________.
A)debit to Cash for $67,260
B)debit to Interest Expense for $67,821
C)debit to Interest Expense for $66,699
D)debit to Discount on Bonds Payable for $561
Q3) When computing a bond's cash flow for interest,which interest rate is used? Why?
Q4) What does the debt to equity ratio show,and how is it calculated?
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Chapter 15: Investments
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Sample Questions
Q1) At the beginning of the year,Wilson Steel,Inc.purchased 10,000 shares of Barnes Metals,Inc.for $34,000 in exchange for cash and now holds 3.2% of the voting stock of Barnes Metals,Inc.The management of Wilson Steel intends to hold this stock for two years.Assuming no other transaction happened during the year,the ________ in the balance sheet will increase.
A)long-term assets
B)cash
C)total assets
D)current assets
Q2) A security is a share or interest representing financial value.
A)True
B)False
Q3) The fair value method is used to account for available-for-sale debt investments. A)True
B)False
Q4) The unrealized holding gains and losses on available-for-sale debt investments are reported on the income statement.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Sample Questions
Q1) List (in the correct order)and briefly discuss the five steps that are followed when preparing the statement of cash flows by the indirect method.
Q2) The cash paid for the purchase of equipment will typically be shown in the investing activities section of the statement of cash flows.
A)True
B)False
Q3) The operating activities section of the statement of cash flows reflects the cash flows that affect current assets and current liabilities.
A)True
B)False
Q4) Which of the following sections of the statement of cash flows include purchases and sales of long-term assets?
A)the financing activities section
B)the operating activities section
C)the investing activities section
D)the non-cash investing and financing section
Q5) What does free cash flow represent? How is it used to evaluate business performance?
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Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) The rate of return on total assets measures a company's success in using its assets to earn a profit.
A)True
B)False
Q2) Which of the following is NOT a purpose of using of using ratios to explain different aspects of a company?
A)evaluating profitability
B)evaluating stock as an investment
C)evaluating the ability to pay current liabilities
D)evaluating income tax return information
Q3) Merchandise inventory and prepaid expenses are excluded from the acid-test ratio.
A)True
B)False
Q4) Horizontal analysis is the study of percentage changes in line items in comparative financial statements.
A)True
B)False
Q5) What is an annual report? Briefly describe the key parts of the annual report.
Q6) What is a common-size statement? Why are these statements useful?
Page 19
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